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Global Antitrust Compliance andRisk—Creating an Effective Program

13th Annual SCCE Compliance & Ethics InstituteChi ILChicago, IL

‒ Timothy Bridgeford, Senior Compliance Counsel – FCPA, Antitrust & Investigations, Tyco

‒ Douglas Tween, Partner, Baker & McKenzie‒ Robert Connolly, Partner, GeyerGorey LLP

What We Will Cover

‒ Overview of global legislation, cartel enforcement activity and trends.

‒ Learn about why the United States and the EU have given little guidance on and no credit for antitrust compliance programs

‒ Learn how to effectively promote antitrust compliance in your organization and build an effective program that supports the effective management and mitigation of risk

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US cartel penalties remain near all-time high

© 2014 Baker & McKenzie LLP 3*as at 1 July 2014

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Prison days

© 2014 Baker & McKenzie LLP 4

Number of defendants sentenced to prison

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Criminal sanctions for antitrust violations

Germany

NorwayUp to 6 years' imprisonment or fines.

Slovak RepublicUp to 3 years' imprisonment or fines of up

United StatesCompanies: Up to US$100 million (approx. €72.7 million), or alternatively twice the amount the

IrelandUp to 5 years' imprisonment and/or up to €4 million or 10% of the annual income on any i di id l i l d i t l

AustriaUp to 3 years' imprisonment on any individual guilty of a bid-rigging offence.Certain antitrust infringements may amount to fraud which can be punishable by up to 10

Czech RepublicUp to 8 years' imprisonment or fines for cartel conduct. The persons signing the restrictive agreement can be jointly and severally liable to the company for damage caused by such action.

DenmarkUnlimited fines on individuals involved in anti-competitive conduct.

EstoniaUp to 3 years’ imprisonment and/or a fine on any member of the management board of a company found guilty of breaching competition law.

Russian FederationUp to 7 years' imprisonment and fines of up to RUB500,000 (approx. €11,790) or fines equivalent to the amount of their salary for a period of up to 3 years and disqualification of up to 3 years.

Up to 5 years' imprisonment and fines on any individual involved in bid-rigging. Other competition law violations could be prosecuted as fraud, which carries the same penalties.

Companies: Cartel offences attract criminal fines of up to CDN$25 million (approx. €18.3 million).

Individuals: Up to 14 years' imprisonment and/or a fine of up to CDN$25 million (approx. €18.3 million) on an individual director, officer or employee found guilty of conspiracy.

Canada

© 2014 Baker & McKenzie LLP 6AS OF: 27 January 2014

Up to 3 years imprisonment or fines of up to €332,000 on any individual found guilty of a serious breach of competition law.

SloveniaUp to 5 years, a monetary fine or prohibition from performing an occupation for a period of up to 5 years.

Thailand

South AfricaFine of up to ZAR500,000 (approx. €45,940) and/or a maximum sentence of 10 years' imprisonment on individuals who engage in cartel conduct, commit procedural breaches or fail to comply with interim or final orders of the Competition Tribunal or the Competition Appeal Court.

United KingdomUp to 5 years' imprisonment and unlimited fines on any individual who is found guilty of taking part in a cartel.

twice the amount the conspirators gained from the illegal acts or twice the money lost by the victims of the crime. Corporations may also be sentenced to a term of probation of up to 5 years.

Individuals: May be fined up to US$1 million (approx. €727,000) or twice the total gain or twice the total loss, and sentenced to a maximum of 10 years in prison on each count.

individual involved in a cartel.

AustraliaUp to 10 years' imprisonment and a fine of AU$220,000 (approximately €140,000) per contravention for those who make, or give effect, to a cartel provision with the intention of dishonestly obtaining a benefit.

years' imprisonment. Unrelated to competition law, companies may be held liable for their employees’ criminal acts and fined up to EUR 1.8 mio.

BrazilThe court may impose a sentence on individuals of between 2 to 5 years’ imprisonment and fine.

FranceUp to 4 years' imprisonment and a fine of up to €75,000 for anyone who played a personal and decisive role in anticompetitive behaviour.

GreeceIndividuals fined up to €1 million depending on the type of the infringement or sentenced to up to 5 years' imprisonment.

HungaryUp to 5 years' imprisonment for price-fixing and bid-rigging in public procurement or concession context

IndiaCivil penalty: fine of up to 250 million Indian Rupees (approx. €3.7 million).

Criminal penalty: breaches of competition law can result in imprisonment for a period of up to three years.

MaltaUp to 3 years (5 years for severe violations) or fines of up to ILS2 million (approx. €400,000).

ItalyUp to 3 years' imprisonment on individuals who are involved in boycotts.

JapanUp to 5 years' imprisonment and/or a fine of up to JPY5 million (approx. €47,000) on any individual who is found guilty of taking part in a cartel.

Mexico

IsraelA company officer found guilty of participating in a cartel is personally liable to the company for the payment of a fine of up to 10% of a company’s turnover.

Up to 10 years' imprisonment and a fine of 1000 to 3000 times the individual's salary for cartels.

Up to 3 years' imprisonment and/or a fine of up to THB6 million (approx. €142,000) may be imposed on a managing partner or a person in charge of operations unless the offence at stake was committed without his/her knowledge or consent and/or reasonable measures were taken to prevent such offence.

ColombiaUp to 12 years, fines up to 1000 Minimum Monthly Wage (US$315 million) and inability to contract with state agencies on any individual involved in bid rigging. Bid rigging is the only antitrust violations criminally sanction in Colombia.

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The ‘long arm’ of US cartel enforcement

Of the $7.8 billion in criminal antitrust fines imposed by the Division between FY 1997 and the end of FY 2012, approximately 97 percent imposed re international cartels

© 2014 Baker & McKenzie LLP 7

65 foreign defendants from France, Germany, Japan, South Korea, Taiwan, the Netherlands, Norway, Sweden, Switzerland and the United Kingdom have served, or have been sentenced to serve, prison sentences in the United States as a result of the Division’s cartel investigations

US Cartel Statistics – Ten Highest Fines by Company

Defendant (FY) Product Fine($ Millions)

Geographic Scope Country

AU Optronics Corporation of Taiwan (2012) Liquid Crystal Display (LCD) Panels

$500 International Taiwan

F. Hoffmann-La Roche, Ltd. (1999) Vitamins $500 International Switzerland

Yazaki Corporation (2012) Automobile Parts $470 International Japan

Bridgestone Corporation (2014) Anti-vibration rubber products for $425 International Japan

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automobiles

LG Display Co., Ltd LG Display America (2009)

Liquid Crystal Display (LCD) Panels

$400 International Korea

Société Air France andKoninklijke Luchtvaart Maatschappij, N.V. (2008)

Air Transportation(Cargo)

$350 International France (Société-Air France)The Netherlands (KLM)

Korean Air Lines Co., Ltd. (2007) Air Transportation(Cargo & Passenger)

$300 International Korea

British Airways PLC (2007) Air Transportation(Cargo & Passenger)

$300 International UK

Samsung Electronics Company, Ltd. Samsung Semiconductor, Inc. (2006)

DRAM $300 International Korea

BASF AG (1999) Vitamins $225 International Germany

Extradition Risk

Successful extradition of Italian citizen from Germany (Marine Hose)

• US$50,000 fine and 24 months in prison

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Implications of extradition?

• Shows DoJ’s continued focus on people/conduct outside US where US commerce affected

• Beware of ‘safe havens’

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Cartels: EU …

Cartels – 2013 ‘highlights’

E d Y I t t R t D i ti (€1 7 billi )

Cartels – 2013 ‘highlights’

E d Y I t t R t D i ti (€1 7 billi )

Cartels – 2014 ‘highlights’

• High Voltage Power Cables (€ 302m)

• Bearings (€953m)

• Power Exchanges (€5.9m)

Cartels – 2014 ‘highlights’

• High Voltage Power Cables (€ 302m)

• Bearings (€953m)

• Power Exchanges (€5.9m)

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• Euro and Yen Interest Rate Derivatives (€1.7 billion):

• UBS avoided €2.5 billion fine

• Automotive Wire Harnesses (€141m)

• Telefonica / Portugal Telecom (€79m)

• Euro and Yen Interest Rate Derivatives (€1.7 billion):

• UBS avoided €2.5 billion fine

• Automotive Wire Harnesses (€141m)

• Telefonica / Portugal Telecom (€79m)

EU cartels – some trends

Global cartel investigations - autoparts and benchmarking

Legitimate trade associations discussion strayed off course

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Expanding category of cartel conduct:

• Financial benchmarks• Price signalling• ‘Pay for Delay” in pharma sector

Canada

United States of America

M i

Russia

China

EgyptPakistan

Turkey

Iceland

Japan

Norway

EU Commission

South Korea

Dawn raids worldwide 2011-2012

© 2014 Baker & McKenzie LLP Source: Global Competition Review : Rating Enforcement 2012-3/ Baker&McKenzie

6-10 dawn raids per year1-5 dawn raids per year0 dawn raids per year

30 + dawn raids per year21-30 dawn raids per year

11-20 dawn raids per year

Dawn raid powers, no publicly available figuresSignificant investigatory powers

Mexico

Brazil

Argentina

Chile SouthAfrica

Australia

New Zealand

IndiaEgypt

United Kingdom

France

Switzerland

Spain

Sweden

GermanyPoland

Italy

Slovakia

HungaryLithuania

LatviaEstonia

Denmark

Romania

Bulgaria

Greece

Czech Republic

Austria

Slovenia

NetherlandsBelgium Finland

SingaporeBangladesh

Thailand

Malaysia

Vietnam

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The U.S. and EU Position on Compliance Programs‒ Amnesty or Leniency is the big carrot – will not also

give credit for a compliance program‒ Cartel violation = a failed compliance program‒ If your company had an effective compliance

program, your company would have gotten the leniency

‒ Little to no official guidance on antitrust corporate compliance programs

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FCPA, UK Bribery Act

FCPA‒ Significant guidance from the DOJ and SEC in 2012‒ Significant credit for self disclosing and having an

effective compliance program under the FCPA‒ Liberal use of NPA and DPA’s for companies‒ Fines can be enormous

UK Bribery Act‒ Significant guidance from the SFO and the Ministry of

Justice‒ Adequate compliance program is a defense‒ Appear to be going to DPA model

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Antitrust Compliance Program Necessary?

‒ To comply with the law ‒ Builds stakeholder confidence ‒ Build company reputation for compliance ‒ Prevent disastrous violation from occurring

ABSOLUTELY!!

g Potential enormous criminal/civil fines in multiple jurisdictions Employee jail time Customer class action lawsuits Shareholder class action lawsuits Potential debarment from government contracts Enormous brand/company reputational damage

‒ Increase chance of detection and qualifying for leniency‒ Cost of failure heavily outweighs the cost of compliance

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Highlights of Effective Overall Compliance Program

High Level Commitment or Tone at the Top

Code of Conduct

Oversight & Autonomy by Compliance Staff

Risk Assessment

Hotline

Internal Investigations

Enforcement and Discipline

Effective compliance programs must be tailored to the company’s specific business and risks and be dynamic to evolve with the business and its risks. 

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Adequate Global Compliance Resources

Specific Policies and Procedures

Comprehensive Internal Audits –Rotational and Proactive

Robust Internal Controls

Third Party Management

M&A Due Diligence

Integration of Newly Acquired Entities into Your Compliance Program

Key Components of Effective Antitrust Compliance Programs

‒ Be sure to win “tone from the top” and senior management commitment specifically on competition matters

‒ Be certain competition compliance is specifically addressed in the code of conduct

‒ Drafting a policyg p y

‒ Risk assessment

‒ Tailored trainings

‒ Auditing and testing

‒ Mergers and acquisitions

‒ Internal reporting and investigations

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Business and Industry Risk Assessment

Proper regulatory risk assessment - Know your company, industry, and jurisdiction(s)

How much cartel risk do you have?‒ Commodity product?

‒ Number of players in your industry?

‒ Opportunity? (Conferences, Trade Associations, etc)pp y ( , , )

Very Important to get a handle on your trade associations!

Due Diligence

Risk Analysis

‒ Bids/Tenders?

Non- cartel risk?‒ Monopolization risks? Market power very much a jurisdictional

risk

‒ Vertical price/nonprice restraints risk?

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Tailored Trainings

‒ Tailor your trainings to your company’s specific antitrust risks

‒ How do you make antitrust training understandable and entertaining?

‒ Don’t forget the “backroom” or office people Administrative assistants and T&E processors p

‒ Don’t forget about your purchasing people – don’t let your company become a victim

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Auditing, Monitoring, and Testing

‒ With no evidence, is this really feasible to uncover a clandestine cartel? Where do you look?

Incredibly expensive

Data privacy implications

‒ Possible options: Proactive email review using keyword hits

T&E audits

Antitrust employee questionnaires or surveys

Full blown proactive audits of “risky” businesses

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Mergers and Acquisitions

‒ Is your business properly trained for “initial discussions?”

‒ Does your M&A team and business have appropriate safeguards to firewall information during due diligence?

‒ Is the M&A team and business properly informed of dangers of “gun jumping?”

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Internal Reporting and Investigations

‒ You have a cartel allegation, what do you do? ‒ Have your “break the glass” plan ready Speed will be of the essence in a race for amnesty Don’t want to be caught flat footed

‒ Is amnesty always the correct decision when available?

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